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 March 31, 2009




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


For the
transition period from ____________ to ____________




Commission
file number:  0-28806




Ever-Glory
International Group Inc.


(Exact
name of registrant as specified in its charter)




Florida
                          
                          65-0420146(State
      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 o    No
x




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).    oYes  oNo




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. o




Large
      accelerated filer
                o
                Accelerated
      filer
                oNon-accelerated
      filer
                o
                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 
o  No
x


As of
May 12,
2009,13,548,498shares 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 STATEMENTS
                      3PART I.  FINANCIAL
      INFORMATION
                      4Item 1.
                      Financial
      Statements
                      4Condensed
      Consolidated Balance Sheets as ofMarch
      31, 2009(unaudited)
      and December 31, 2008
                      4Condensed
      Consolidated Statements of Operations and Comprehensive Income for the
      Three Months EndedMarch
      31, 2009 and 2008(unaudited)
                      5Condensed
      Consolidated Statements of Cash Flows for theThreeMonths
      EndedMarch
      31, 2009and
      2008(unaudited)
                      6Notes to the
      Condensed Consolidated Financial Statements
      (unaudited)
                      7Item 2.
                      Management’s Discussion and
      Analysis of Financial Condition and Results of
      Operations
                      18Item 3.
                      Quantitative and Qualitative
      Disclosures About Market Risk
                      29Item 4.
                      Controls and
      Procedures
                      30PART II.  OTHER
      INFORMATION
                      30Item 1.
                      Legal
      Proceedings
                      30Item 1A.
                      Risk
    Factors
                      30Item 2.
                      Unregistered Sales of Equity
      Securities and Use of Proceeds
                      31Item 3.
                      Defaults Upon Senior
      Securities
                      31Item 4.
                      Submission of Matters to a Vote
      of Security Holders
                      32Item 5.
                      Other
      Information
                      32Item 6.
                      Exhibits
                      32SIGNATURES
                      33




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 Section entitled “Risk Factors” on Form 10-K 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 MARCH 31, 2009 (UNAUDITED) AND DECEMBER 31, 2008





March
      31,
                        
                        
                        December
      31,2009
                        
                        
                        2008(unaudited)ASSETSCURRENT
      ASSETSCash
      and cash equivalents
                        
                        $
                        3,833,600
                        
                        
                        $
                        1,445,363Accounts
      receivable
                        
                        
                        12,970,781
                        
                        
                        
                        9,485,338Accounts
      receivable - related parties
                        
                        
                        73,900
                        
                        
                        
                        -Inventories
                        
                        
                        2,856,073
                        
                        
                        
                        3,735,227Other
      receivables and prepaid expenses
                        
                        
                        433,038
                        
                        
                        
                        945,191Advances
      on inventory purchases
                        
                        
                        209,321
                        
                        
                        
                        288,256Amounts
      due from related party
                        
                        
                        10,754,680
                        
                        
                        
                        11,565,574Total
      Current Assets
                        
                        
                        31,131,393
                        
                        
                        
                        27,464,949LAND
      USE RIGHT, NET
                        
                        
                        2,834,195
                        
                        
                        
                        2,854,508PROPERTY
      AND EQUIPMENT, NET
                        
                        
                        12,799,944
                        
                        
                        
                        12,494,452INVESTMENT
      AT COST
                        
                        
                        1,465,000
                        
                        
                        
                        1,467,000TOTAL
      ASSETS
                        
                        $
                        48,230,532
                        
                        
                        $
                        44,280,909LIABILITIES
      AND EQUITYCURRENT
      LIABILITIESBank
      loans
                        
                        $
                        6,592,500
                        
                        
                        $
                        6,542,820Accounts
      payable
                        
                        
                        5,290,568
                        
                        
                        
                        3,620,543Other
      payables- related party
                        
                        
                        903,416
                        
                        
                        
                        754,589Other
      payables and accrued liabilities
                        
                        
                        1,813,614
                        
                        
                        
                        1,683,977Value
      added and other taxes payable
                        
                        
                        656,583
                        
                        
                        
                        368,807Income
      tax payable
                        
                        
                        207,550
                        
                        
                        
                        257,946Deferred
      tax liabilities
                        
                        
                        176,086
                        
                        
                        
                        80,009Total
      Current Liabilities
                        
                        
                        15,640,317
                        
                        
                        
                        13,308,691LONG-TERM
      LIABILITIESLoan
      from related party
                        
                        
                        2,689,350
                        
                        
                        
                        2,660,085TOTAL
      LIABILITIES
                        
                        
                        18,329,667
                        
                        
                        
                        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, 12,394,652 and
      12,373,567 shares issued and outstanding as of March 31,2009 and
      December 31, 2008, respectively)
                        
                        
                        12,395
                        
                        
                        
                        12,374Additional
      paid-in capital
                        
                        
                        4,571,164
                        
                        
                        
                        4,549,004Retained
      earnings
                        
                        
                        17,429,895
                        
                        
                        
                        15,807,539Statutory
      reserve
                        
                        
                        3,437,379
                        
                        
                        
                        3,437,379Accumulated
      other comprehensive income
                        
                        
                        3,912,652
                        
                        
                        
                        3,956,860Total
      Stockholders' Equity of the Company
                        
                        
                        29,363,485
                        
                        
                        
                        27,763,156Noncontrolling
      interest
                        
                        
                        537,380
                        
                        
                        
                        548,977Total
      Equity
                        
                        
                        29,900,865
                        
                        
                        
                        28,312,133TOTAL
      LIABILITIES AND EQUITY
                        
                        $
                        48,230,532
                        
                        
                        $
                        44,280,909




4




EVER-GLORY
INTERNATIONAL GROUP, INC. AND SUBSDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME





FOR
THE THREE MONTHS ENDED MARCH 31, 2009 AND 2008 (UNAUDITED)





2009
                        
                        
                        2008NET
      SALESRelated
      parties
                        
                        $
                        -
                        
                        
                        $
                        425,102Third
      parties
                        
                        
                        20,507,822
                        
                        
                        
                        19,322,106Total
      net sales
                        
                        
                        20,507,822
                        
                        
                        
                        19,747,208COST
      OF SALESRelated
      parties
                        
                        
                        -
                        
                        
                        
                        402,748Third
      parties
                        
                        
                        15,793,667
                        
                        
                        
                        15,623,424Total
      cost of sales
                        
                        
                        15,793,667
                        
                        
                        
                        16,026,172GROSS
      PROFIT
                        
                        
                        4,714,155
                        
                        
                        
                        3,721,036OPERATING
      EXPENSESSelling
      expenses
                        
                        
                        940,474
                        
                        
                        
                        277,528General
      and administrative expenses
                        
                        
                        1,856,122
                        
                        
                        
                        1,412,654Total
      Operating Expenses
                        
                        
                        2,796,596
                        
                        
                        
                        1,690,182INCOME
      FROM OPERATIONS
                        
                        
                        1,917,559
                        
                        
                        
                        2,030,854OTHER
      INCOME (EXPENSES)Interest
      income
                        
                        
                        103,547
                        
                        
                        
                        31,974Interest
      expense
                        
                        
                        (123,650
                        )
                        
                        
                        (577,828
                        )Other
      income
                        
                        
                        2,373
                        
                        
                        
                        -Total
      Other Income (Expenses)
                        
                        
                        (17,730
                        )
                        
                        
                        (545,854
                        )INCOME
      BEFORE INCOME TAX EXPENSE
                        
                        
                        1,899,829
                        
                        
                        
                        1,485,000INCOME
      TAX EXPENSE
                        
                        
                        (289,071
                        )
                        
                        
                        (283,838
                        )NET
      INCOME
                        
                        
                        1,610,758
                        
                        
                        
                        1,201,162ADD(LESS):
      NET LOSS(INCOME) ATTRIBUTABLE TO THE NONCONTROLING
INTEREST
                        
                        
                        11,598
                        
                        
                        
                        (3,869
                        )NET
      INCOME ATTRIBUTABLE TO THE COMPANY
                        
                        
                        1,622,356
                        
                        
                        
                        1,197,293Foreign
      currency translation (loss) gain
                        
                        
                        (44,208
                        )
                        
                        
                        1,099,884COMPREHENSIVE
      INCOME
                        
                        
                        1,578,148
                        
                        
                        
                        2,297,177COMPREHENSIVE
      (LOSS) INCOME ATTRIBUTABLE TOTHE
      NONCONTROLING INTEREST
                        
                        
                        (12,392
                        )
                        
                        
                        23,457COMPREHENSIVE
      INCOME ATTRIBUTABLE TOTHE
      COMPANY
                        
                        $
                        1,590,540
                        
                        
                        $
                        2,273,720NET
      INCOME PER SHAREAttributable
      to the Company's common stockholdersBasic
                        
                        $
                        0.12
                        
                        
                        $
                        0.10Diluted
                        
                        $
                        0.12
                        
                        
                        $
                        0.10Weighted
      average number of shares outstandingBasic
                        
                        
                        13,531,225
                        
                        
                        
                        11,449,682Diluted
                        
                        
                        13,531,225
                        
                        
                        
                        12,204,363


5




EVER-GLORY
INTERNATIONAL GROUP, INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


FOR
THE THREE MONTHS ENDED MARCH 31, 2009 AND 2008 (UNAUDITED)





2009
                                    
                                    
                                    2008CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      income
                                    
                                    $
                                    1,610,758
                                    
                                    
                                    $
                                    1,201,162Adjustments
      to reconcile net income to cash provided by operating
      activities:Depreciation
      and amortization
                                    
                                    
                                    484,005
                                    
                                    
                                    
                                    238,432Deferred
      income tax
                                    
                                    
                                    96,194
                                    
                                    
                                    
                                    -Amortization
      of discount on convertible notes
                                    
                                    
                                    -
                                    
                                    
                                    
                                    349,337Amortization
      of deferred financing costs
                                    
                                    
                                    -
                                    
                                    
                                    
                                    73,676Stock
      issued for interest
                                    
                                    
                                    -
                                    
                                    
                                    
                                    2,006Changes
      in operating assets and liabilitiesAccounts
      receivable
                                    
                                    
                                    (3,488,612
                                    )
                                    
                                    
                                    1,941,016Accounts
      receivable - related parties
                                    
                                    
                                    (73,905
                                    )
                                    
                                    
                                    161,317Inventories
                                    
                                    
                                    874,121
                                    
                                    
                                    
                                    121,586Other
      receivables and prepaid expenses
                                    
                                    
                                    (227,276
                                    )
                                    
                                    
                                    (8,636
                                    )Advances
      on inventory purchases
                                    
                                    
                                    78,547
                                    
                                    
                                    
                                    (9,058
                                    )Amounts
      due from related party
                                    
                                    
                                    795,181
                                    
                                    
                                    
                                    (44,291
                                    )Accounts
      payable
                                    
                                    
                                    1,675,077
                                    
                                    
                                    
                                    299,523Accounts
      payable - related parties
                                    
                                    
                                    148,837
                                    
                                    
                                    
                                    (68,882
                                    )Other
      payables and accrued liabilities
                                    
                                    
                                    151,499
                                    
                                    
                                    
                                    (204,734
                                    )Other
      payables-related parties
                                    
                                    
                                    2,327
                                    
                                    
                                    
                                    -Value
      added and other taxes payable
                                    
                                    
                                    288,298
                                    
                                    
                                    
                                    123,406Income
      tax payable
                                    
                                    
                                    (50,047
                                    )
                                    
                                    
                                    196,038Long
      term deferred expense
                                    
                                    
                                    
                                    
                                    
                                    
                                    (56,406
                                    )Net
      cash provided by operating activities
                                    
                                    
                                    2,365,004
                                    
                                    
                                    
                                    4,315,492CASH
      FLOWS FROM INVESTING ACTIVITIESInvestment
      in La Chapelle
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (1,397,700
                                    )Purchase
      of property and equipment
                                    
                                    
                                    (65,719
                                    )
                                    
                                    
                                    (84,333
                                    )Proceeds
      from sale of equipment
                                    
                                    
                                    3,778
                                    
                                    
                                    
                                    377Net
      cash used in investing activities
                                    
                                    
                                    (61,941
                                    )
                                    
                                    
                                    (1,481,656
                                    )CASH
      FLOWS FROM FINANCING ACTIVITIESContribution
      from minority shareholders
                                    
                                    
                                    -
                                    
                                    
                                    
                                    553,040Proceeds
      from bank loans
                                    
                                    
                                    5,860,400
                                    
                                    
                                    
                                    -Repayment
      of bank loans
                                    
                                    
                                    (5,801,796
                                    )
                                    
                                    
                                    (2,096,550
                                    )Proceeds
      from related party loan
                                    
                                    
                                    29,265
                                    
                                    
                                    
                                    59,116Net
      cash provided by (used in) financing activities
                                    
                                    
                                    87,869
                                    
                                    
                                    
                                    (1,484,394
                                    )EFFECT
      OF EXCHANGE RATE CHANGES ON CASH
                                    
                                    
                                    (2,695
                                    )
                                    
                                    
                                    153,487NET
      INCREASE IN CASH AND CASH EQUIVALENTS
                                    
                                    
                                    2,388,237
                                    
                                    
                                    
                                    1,502,930CASH
      AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
                                    
                                    
                                    1,445,363
                                    
                                    
                                    
                                    641,739CASH
      AND CASH EQUIVALENTS AT END OF PERIOD
                                    
                                    $
                                    3,833,600
                                    
                                    
                                    $
                                    2,144,669SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATION:Cash
      paid during the period
      for:Interest
                                    
                                    $
                                    144,646
                                    
                                    
                                    $
                                    68,859Income
      taxes
                                    
                                    $
                                    242,924
                                    
                                    
                                    $
                                    84,576




6




EVER-GLORY
INTERNATIONAL GROUP, INC AND SUBSIDIARIES
 NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 MARCH
31, 2009
  NOTE
1 BASIS OF PRESENTATION




Ever-Glory
International Group, Inc. (the “Company”), together with its subsidiaries, 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 Ever-Glory International Group, Inc. and its
subsidiaries contain all adjustments, consisting of normal recurring
adjustments, considered necessary for a fair presentation of the condensed
consolidated balance sheet as of March 31,2009, the condensed consolidated
statements of income and comprehensive income for the three months ended
March 31,2009 and 2008, and the condensed consolidated statements of cash flows
for the three months ended March 31,2009 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 months ended March 31,2009 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. The Company has made certain reclassifications to the prior year’s
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. Ever-Glory Apparel is principally engaged in the import and export of
apparel, fabric and accessories.




On March
23,2009 Goldenway transfered all ofits
ownershipinterest in LA GO GO to Ever-Glory Apparel.




NOTE
2 SIGNIFICANT ACCOUNTING POLICIES




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.


7




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 March
31, 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 March 31,
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.




For
the subsidiaries whose functional currencies are the RMB, all assets and
liabilities were translated at the exchange rate on the balance sheet date;
stockholders’ equity are 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 statements of 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 ($184) and
$190,218 for the three month periods ended March 31, 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.


8


In
December 2007, FASB issued Statement of Financial Accounting Standards (“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 three months ended
March 31,2009.




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 will
require 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 will be effective for
interim periods ending after June 15, 2009, with early adoption permitted. The
Company elected early adoption of FSP 107-1 which 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 sheet 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 sheet
and statement of operations and comprehensive income for the prior period to
conform with this standard.




NOTE
3 INVENTORIES




Inventories
at March, 31 2009 and December 31, 2008 consisted of the following:




2009
                    
                    
                    2008Raw
      materials
                    
                    $
                    185,348
                    
                    
                    $
                    328,607Work-in-progress
                    
                    
                    226,517
                    
                    
                    
                    342,303Finished
      goods
                    
                    
                    2,444,208
                    
                    
                    
                    3,064,317Total
      inventories
                    
                    $
                    2,856,073
                    
                    
                    $
                    3,735,227




9




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
March 31, 2009 and December 31, 2008, short term bank loans consisted of the
following:




2009
                                    
                                    
                                    2008Bank
      loan, interest rate at 0.60225% per month, paid in full, February
      2009
                                    
                                    
                                    
                                    
                                    
                                    $
                                    5,809,320Bank
      loan, interest rate at 0.4455% per month, paid in full, April
      2009
                                    
                                    $
                                    732,500Bank
      loan, interest rate at 0.4455% per month, due July 12,
2009
                                    
                                    
                                    1,465,000Bank
      loan, interest rate at 0.4455% per month, due July 15,
2009
                                    
                                    
                                    732,500Bank
      loan, interest rate at 0.4455% per month, due July 18,
2009
                                    
                                    
                                    1,904,500Bank
      loan, interest rate at 0.4455% per month, due August 15,
    2009
                                    
                                    
                                    1,025,500Bank
      loan, interest rate at 0.48825% per month, due December 8.2009.
      paid in full, April 2009
                                    
                                    
                                    732,500
                                    
                                    
                                    
                                    733,500Total
      bank loans
                                    
                                    $
                                    6,592,500
                                    
                                    
                                    $
                                    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 (RMB 50 million). These borrowings are guaranteed by Jiangsu Ever-Glory,
an entity controlled by Mr. Kang, the Company’s Chief Executive Officer. These
borrowings are also collateralized by the Company’s property and plant. As of
March 31, 2009, bank loans include approximately $5.9 million borrowed under
this agreement and $1.4 million was unused and available. The $732,500 was
repaid in April 2009. Also in April 2009 the Company borrowed an additional
$732,500 under this agreement.




The bank
loan for $732,500 that is due in December 2009 is collateralized by personal
property of Mr. Kang, the Company’s Chief Executive Officer. This loan was
repaid in April 2009.


10




Total
interest expense on the bank loans for the three months ended March 31, 2009 and
2008 amounted to $94,385 and $68,859, respectively.




NOTE
5 INCOME TAX




PRC
Pre-tax income for the three months ended March 31 2009 and 2008 was taxable in
the following jurisdictions:




2009
                  
                  
                  2008PRC
                  
                  $
                  1,938,897
                  
                  
                  $
                  2,131,086Others
                  
                  
                  (39,068
                  )
                  
                  
                  (646,086
                  )$
                  1,899,829
                  
                  
                  $
                  1,485,000




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.




In 2009
and 2008, Goldenway’s income tax rate was 25%.




New-Tailun
and Catch-Luck were approved as wholly foreign-owned enterprises in 2006 and are
entitled to income tax exemptions in 2006 and 2007. For 2008, 2009 and 2010,
New-Tailun and Catch-Luck are entitled to a 50% reduction to the income tax rate
of 25%. Therefore these two subsidiaries are taxed at 12.5% for these three
years.




In 2009
and 2008, LA GO GO’s income tax rate was 25%.




Income
tax expense was $289,071 and $283,838 for the three months ended March 31, 2009
and 2008, respectively.




The
following table reconciles the PRC statutory rates to the Company’s effective
tax rate for the three months ended March 31, 2009 and 2008:




2009
                      
                      
                      2008PRC
      Statutory Rate
                      
                      
                      25.0
                      %
                      
                      
                      25.0
                      %Income
      tax exemption
                      
                      
                      (14.2
                      )
                      
                      
                      (11.7
                      )Other
                      
                      
                      4.1Effective
      income tax rate
                      
                      
                      14.9
                      %
                      
                      
                      13.3
                      %




11


Income
tax expense for the three months ended March 31,2009 and 2008 is as
follows:




2009
                  
                  
                  2008Current
                  
                  $
                  192,877
                  
                  
                  $
                  283,838Deferred
                  
                  
                  96,194Income
      tax expense
                  
                  $
                  289,071
                  
                  
                  $
                  283,838




NOTE
6 EARNINGS PER SHARE




The
following demonstrates the calculation for earnings per share for the three
months ended March 31:




2009
                      
                      
                      2008Net
      income
                      
                      $
                      1,622,356
                      
                      
                      $
                      1,197,293Add:
      interest expense related to convertible notes
                      
                      
                      
                      
                      
                      
                      26,842Adjusted
      net income for calculating EPS-diluted
                      
                      $
                      1,622,356
                      
                      
                      $
                      1,224,135Weighted
      average number of common stock – Basic
                      
                      
                      13,531,225
                      
                      
                      
                      11,449,682Effect
      of dilutive securities:Convertible
      notes
                      
                      
                      
                      
                      
                      
                      754,681Weighted
      average number of common stock – Diluted
                      
                      
                      13,531,225
                      
                      
                      
                      12,204,363Earnings
      per share - basic
                      
                      $
                      0.12
                      
                      
                      $
                      0.10Earnings
      per share - diluted
                      
                      $
                      0.12
                      
                      
                      $
                      0.10








As of
March 31, 2009, the Company excluded 913,182 warrants outstanding from diluted
earnings per share because the exercise price of $3.20 exceeded the average
trading price of $1.88 for the three months ended March 31, 2009, making these
warrant anti-dilutive. As of March 31, 2008, the Company excluded all 981,819
warrants outstanding from diluted earnings per share because the exercise price
of $3.20 exceeded the average trading price of $3.06 for the three months ended
March 31, 2008, making these warrant anti-dilutive.




NOTE
7 STOCKHOLDERS’ EQUITY




On March
13, 2009 and March 25, 2009, the Company issued 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, which was the average market price of the common stock for the
five days before the grant date.


12





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.




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 with Nanjing Knitting were $425,102 and $402,748 for the
three months ended March 31, 2008.




Purchases from and
Sub-contracts with Related Parties




For the
three months ended March 31, 2009 and 2008, the Company purchased raw materials
of $253,645 and $670,545, respectively, from Nanjing Knitting.




In
addition, the Company sub-contracted certain manufacturing work to related
companies totaling $226,651 and $12,418 for the months ended March 31, 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 months ended March
31, 2009 and 2008 are as follows:




2009
                          
                          
                          2008Nanjing
      High-Tech Knitting & Weaving Technology Development Co.,
      Ltd
                          
                          $
                          74,580
                          
                          
                          $
                          12,418Nanjing
      Ever-Kyowa Garment Washing Co., Ltd.,
                          
                          
                          152,071Total
                          
                          $
                          226,651
                          
                          
                          $
                          12,418




Accounts Receivable –
Related Parties




Accounts
receivable from related parties were $73,900 for products sold and
sub-contracting services provided for the three months ended March 31,
2009.


13


Amounts Due FromRelated
Party




Jiangsu
Ever-Glory International Group Corp., (“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 restrictions on its ability to
directly import and export products, the Company utilizes Jiangsu Ever-Glory as
its agent, to assist the Company with its import and export transactions and its
international transportation projects. Import transactions primarily consist of
purchases of raw materials and accessories designated by the Company’s customers
for use in garment manufacture. Export transactions consist of the Company’s
sales to foreign markets such as Japan, Europe and the United States. As the
Company’s agent, Jiangsu Ever-Glory’s responsibilities include managing customs,
inspection, transportation, insurance and collections on behalf of the Company.
Jiangsu Ever-Glory also manages transactions denominated in currencies other
than the Chinese RMB at rates of exchange agreed between the Company and Jiangsu
Ever-Glory and based upon rates of exchange quoted by the People’s Bank of
China. In return for these services, Jiangsu Ever-Glory charges the Company a
fee of approximately 3% of export sales.  For import transactions, the
Company may make advance payments, through Jiangsu Ever-Glory, for the raw
material purchases, or Jiangsu Ever-Glory may make advance payments on the
Company’s behalf. For export transactions, accounts receivable for export
sales are remitted by the Company’s customers through Jiangsu Ever-Glory, who
forwards the payments to the Company. The Company and Jiangsu Ever-Glory have
agreed that balances from import and export transactions may be
offset.  Amounts due to (from) Jiangsu Ever-Glory are typically
settled within 60-90 days. Interest at 0.5% per month is charged on net
amounts due at each month end when the amounts are outstanding more than 60
days. Interest income for the three months ended March 31, 2009 and 2008 was
$102,579 and $30,267, respectively. Following is a summary of import and export
transactions for the three months ended March 31, 2009:




Accounts Receivable
                  
                  
                  Accounts Payable
                  
                  
                  NetAs
      of January 1,2009
                  
                  $
                  17,938,281
                  
                  
                  $
                  6,372,707
                  
                  
                  $
                  11,565,574Sales/Purchase
                  
                  $
                  17,966,841
                  
                  
                  $
                  7,943,492Payment
      Received/Made
                  
                  $
                  21,712,129
                  
                  
                  $
                  10,877,887As
      of March 31,2009
                  
                  $
                  14,192,993
                  
                  
                  $
                  3,438,312
                  
                  
                  $
                  10,754,680




Approximately
54% of the receivable balance at March 31, 2009 was settled by May 11,
2009.




Other Payables–Related
Party




As of
March 31, 2009 and December 31, 2008, other payables to related parties
were $903,416 and $754,589, respectively. The details are as
follows:




2009
                        
                        
                        2008Ever-Glory
      Enterprise HK Limited
                        
                        $
                        756,916
                        
                        
                        $
                        754,589Shanghai
      La Chapelle Garment and Accessories Company Limited
                        
                        
                        146,500Total
                        
                        $
                        903,416
                        
                        
                        $
                        754,589




As of
March 31, 2009, $200,000 was due for the purchase of Catch-Luck and $556,916 was
due for legal and professional fees paid by Ever-Glory Hong Kong on behalf of
the Company.




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 has no stated repayment terms.
Management expects to repay this loan with cash flow from operations
within the next twelve months.


14


Long-Term Liability –
Related Party




As of
March 31, 2009 and December 31, 2008 the Company owed $2,689,350 and $2,660,085,
respectively to Blue Power Holdings Limited., a company controlled by the
Company’s Chief Executive Officer. Interest is charged at 6% per annum on the
amounts due. The loans are due between July 2010 and April 2011. For the three
months ended March 31,2009 and 2008, the Company incurred interest expense of
$29,265 and $59,115, 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 March 31, 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 collect ability of accounts receivables were incorrect,
adjustments to the allowance may be required, which would reduce
profitability.




For the
three-month period ended March 31, 2009, the Company had two wholesale customers
that represented approximately 37% and 10% of the Company’s
revenues.  At March 31, 2009, approximately 46% of accounts receivable
were due from these two customers. For the three-month period ended March 31,
2008, the Company had one customer that represented approximately 29% of the
Company’s revenues.




For the
wholesale business, during the three months ended March 31, 2009 and 2008, one
supplier represented 13% of the Company’s raw material purchases, in each
period.




For the
retail business, the Company principally relied on three raw material suppliers
during the three months ended March 31 2009 as follows:




Supplier
      A
                      
                      
                      Supplier
      B
                      
                      
                      Supplier
      C14
                      %
                      
                      
                      12
                      %
                      
                      
                      12
                      %




For the
wholesale business, during the three months ended March 31, 2009 and 2008, the
Company relied on one manufacturer for 22% and 13% of purchased finished goods,
respectively. For the retail business, the Company did not rely on any supplier
of purchased finished goods in excess of 10% of total purchases during
2009.




The
Company’s revenues for the three months ended March 31,2009 and 2008 were earned
in the following geographic areas:




2009
                    
                    
                    2008The
      People’s Republic of China
                    
                    $
                    3,349,050
                    
                    
                    $
                    1,914,785Europe
                    
                    
                    11,237,458
                    
                    
                    
                    12,974,613Japan
                    
                    
                    4,689,704
                    
                    
                    
                    2,499,972United
      States
                    
                    
                    1,231,610
                    
                    
                    
                    2,357,838Total
                    
                    $
                    20,507,822
                    
                    
                    $
                    19,747,208


15


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."


16




Wholesale segment
                    
                    
                    Retail segment
                    
                    
                    Corporate and
                      others
                    
                    
                    TotalMarch
      31,2009Segment
      profit or loss:Net
      revenue from external customers
                    
                    $
                    17,975,623
                    
                    
                    $
                    2,532,199
                    
                    
                    $
                    -
                    
                    
                    $
                    20,507,822Net
      revenue from related parties
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -Income
      from operations
                    
                    $
                    1,959,048
                    
                    
                    $
                    (31,685
                    )
                    
                    $
                    (9,804
                    )
                    
                    $
                    1,917,559Interest
      income
                    
                    $
                    103,228
                    
                    
                    $
                    319
                    
                    
                    $
                    -
                    
                    
                    $
                    103,547Interest
      expense
                    
                    $
                    94,385
                    
                    
                    $
                    -
                    
                    
                    $
                    29,265
                    
                    
                    $
                    123,650Depreciation
      and amortization
                    
                    $
                    197,352
                    
                    
                    $
                    233,129
                    
                    
                    $
                    -
                    
                    
                    $
                    430,481Income
      tax expense
                    
                    $
                    289,071
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    289,071Segment
      assets:Additions
      to property, plant and equipment
                    
                    $
                    52,725
                    
                    
                    $
                    12,994
                    
                    
                    $
                    -
                    
                    
                    $
                    65,719Total
      assets
                    
                    $
                    47,766,068
                    
                    
                    $
                    4,364,528
                    
                    
                    $
                    40,054,976
                    
                    
                    $
                    92,185,572March
      31,2008Segment
      profit or loss:Net
      revenue from external customers
                    
                    $
                    19,300,006
                    
                    
                    $
                    120,198
                    
                    
                    $
                    -
                    
                    
                    $
                    19,420,204Net
      revenue from related parties
                    
                    $
                    425,102
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    425,102Income
      from operations
                    
                    $
                    2,155,168
                    
                    
                    $
                    12,898
                    
                    
                    $
                    (137,212
                    )
                    
                    $
                    2,030,854Interest
      income
                    
                    $
                    31,881
                    
                    
                    $
                    -
                    
                    
                    $
                    93
                    
                    
                    $
                    31,974Interest
      expense
                    
                    $
                    68,858
                    
                    
                    $
                    -
                    
                    
                    $
                    508,970
                    
                    
                    $
                    577,828Depreciation
      and amortization
                    
                    $
                    186,448
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    186,448Income
      tax expense
                    
                    $
                    280,614
                    
                    
                    $
                    3,224
                    
                    
                    $
                    -
                    
                    
                    $
                    283,838Segment
      assets:Additions
      to property, plant and equipment
                    
                    $
                    79,160
                    
                    
                    $
                    5,173
                    
                    
                    $
                    -
                    
                    
                    $
                    84,333Total
      assets
                    
                    $
                    35,626,041
                    
                    
                    $
                    1,745,688
                    
                    
                    $
                    38,200,718
                    
                    
                    $
                    75,572,447





The
reconciliation of segment information to the Company’s consolidated totals is as
follows:




March
      31, 2009
                                
                                
                                March
      31, 2008Revenues:Total
      reportable segments
                                
                                $
                                20,507,822
                                
                                
                                $
                                19,845,306Elimination
      of intersegment revenues
                                
                                
                                -
                                
                                
                                $
                                (98,098
                                )Total
      consolidated
                                
                                $
                                20,507,822
                                
                                
                                $
                                19,747,208Income
      from operations:Total
      segments
                                
                                $
                                1,917,559
                                
                                
                                $
                                2,030,854Total
      consolidated
                                
                                $
                                1,917,559
                                
                                
                                $
                                2,030,854Total
      assets:Total
      segments
                                
                                $
                                92,185,572
                                
                                
                                $
                                75,572,447Elimination
      of intersegment receivables
                                
                                $
                                (43,955,040
                                )
                                
                                $
                                (39,928,489
                                )Total
      consolidated
                                
                                $
                                48,230,532
                                
                                
                                $
                                35,643,958


17




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 months ended March 31, 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,” “target”, “forecast” and similar expressions
to identify forward-looking statements.





Overview




Our
Business




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




We
classify our businesses into two segments: Wholesale and Retail. Our wholesale
business consists of wholesale-channel sales made principally to famous brands,
department stores and specialty stores located throughout Europe, 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. We aim to increase our outsourcing manufacturing and expect it to
generate over 70% of the total revenues in the wholesale sector. 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. We oversee our long-term contractors with
our advanced management solutions and inspect products manufactured by them to
ensure that they meet our high quality control standards and timely
delivery.




On
January 6, 2009, we set up 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.




On March
23, 2009, Goldenway transferred allof its
ownershipinterestin LA GO GO to Ever-Glory Apparel.




As of
March 31, 2009, we had approximately 2,220 employees, with an annual
production capacity including outsourcing orders in excess of 12 million
pieces.




Wholesale
Business




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


18


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
                  
                  
                  
                  1Q2009Total
      stores
                  
                  
                  39
                  
                  
                  
                  55
                  
                  
                  
                  93
                  
                  
                  
                  102Total
      square meters
                  
                  
                  3207
                  
                  
                  
                  5513
                  
                  
                  
                  7876
                  
                  
                  
                  9032




Business
Objectives




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




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 the Average Selling Price
  uptrend;


·
              Emphasize
      product design and technology application;
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 March 31, 2009, we have 102 stores including 9 new stores in
2009. We expect to open between 80-100 stores in 2009. Opportunities and
continued investment initiatives include:




·
            Expand
      to a multi-brand operator;


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


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


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


·
              Expand
      LA GO GO retail network;


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


19


·
            Strengthen
      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





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 of 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 EU
economy have increased our clients’ sensitivity to the cost of our products. 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 in 2009.




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 for or written off in the coming
quarters.




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.


20


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.




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 used the Black-Scholes option price model to value the
warrants granted.




Inventory




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




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




Recent Accounting
Pronouncements




In June
2008, the Financial Accounting Standards Board ("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 Statement of Financial Accounting Standards
(“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 three months
ended March 31,2009.


21


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 will
require 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 will be effective for
interim periods ending after June 15, 2009, with early adoption permitted. The
Company elected early adoption of FSP 107-1 which 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 calance 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 statement of operations and
comprehensive income for the prior period to confirm with this
standard.




Results
of Operations




The
following table summarizes our results of operations for the three months
ended March 31, 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.




Revenue




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




Three months
                      ended March
                      31,2009
                    
                    
                    % of total
                      sales
                    
                    
                    Three months
                      ended March
                      31,2008
                    
                    
                    % of total
                      sales
                    
                    
                    Growth in 2009
                      compared with
                      2008Wholesale
      businessThe
      People’s Republic of China
                    
                    $
                    816,852
                    
                    
                    
                    4.0
                    %
                    
                    $
                    1,794,587
                    
                    
                    
                    9.1
                    %
                    
                    
                    -54.5
                    %Europe
                    
                    
                    11,237,458
                    
                    
                    
                    54.8
                    %
                    
                    
                    12,974,613
                    
                    
                    
                    65.7
                    %
                    
                    
                    -13.4
                    %Japan
                    
                    
                    4,689,704
                    
                    
                    
                    22.9
                    %
                    
                    
                    2,499,972
                    
                    
                    
                    12.7
                    %
                    
                    
                    87.6
                    %United
      states
                    
                    
                    1,231,610
                    
                    
                    
                    6.0
                    %
                    
                    
                    2,357,838
                    
                    
                    
                    11.9
                    %
                    
                    
                    -47.8
                    %Sub
      total
                    
                    
                    17,975,623
                    
                    
                    
                    87.7
                    %
                    
                    
                    19,627,010
                    
                    
                    
                    99.4
                    %
                    
                    
                    -8.4
                    %Retail
      business
                    
                    
                    2,532,199
                    
                    
                    
                    12.3
                    %
                    
                    
                    120,198
                    
                    
                    
                    0.6
                    %
                    
                    
                    2006.7
                    %Total
                    
                    $
                    20,507,822
                    
                    
                    
                    100.0
                    %
                    
                    $
                    19,747,208
                    
                    
                    
                    100.0
                    %
                    
                    
                    3.9
                    %




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


22




Sales for
the three months ended March 31, 2009 were $20,507,822, an increase of 3.9% from
the three months ended March 31, 2008. The increase in our sales was primarily
attributable to:




·           Increased
sales orders in our wholesale business to customers in Japan and


·           Increased
sales in our retail business




Sales
growth was partially offset by:




·       Decreased
sales orders in our wholesale business from customers in the U.S., Europe and
China due to the global slowdown.




Sales
to customers in Europecontributed 54.8% of our
total sales for the three months ended March 31, 2009, a decrease of 13.4%
compared to the three months ended March 31, 2008. The decrease was primarily
due to one major customer in France reducing its orders because of the weak
economic environment.




Sales to
customers in the U.S. contributed 6.0% of our total sales for the three months
ended March 31, 2009, a decrease of 47.8% compared to the three months
ended March 31, 2008. The decrease was primarily due to the weak economic
environment in the U.S.




Sales to
customers in Japan contributed 22.9% of our total sales for the three months
ended March 31, 2009, an increase of 87.6% compared to the three months ended
March 31, 2008. The increase was attributable to increased orders from premium
brands in the Japanese market.




Sales to
customers in the Chinese market contributed 4.0% of our total sales in for the
three months ended March 31, 2009, a decrease of 54.5% compared to the three
months ended March 31, 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 12.3% or $2.5 million of our
total sales for the three months ended March 31, 2009, compared to $120,198 in
the three months ended March 31, 2008. In the first three months of 2009 we
opened 9 new LA GO GO stores. As of March 31, 2009, we had 102 LA GO GO retail
stores open and average revenue per store was approximately $8,500 per month
after two full months of operations.




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
March 31, 2009 and 2008.


23




Three months ended March
31,2009
                  
                  
                  2008(in
      U.S. dollars, except for percentages)
                  
                  
                  % ChangeTotal
      Net Sales
                  
                  $
                  20,507,822
                  
                  
                  
                  100
                  %
                  
                  $
                  19,747,208
                  
                  
                  
                  100
                  %
                  
                  
                  3.9
                  %Raw
      materials
                  
                  
                  7,152,666
                  
                  
                  
                  34.9
                  %
                  
                  
                  9,611,327
                  
                  
                  
                  48.7
                  %
                  
                  
                  -25.6
                  %Labor
                  
                  
                  630,264
                  
                  
                  
                  3.1
                  %
                  
                  
                  604,412
                  
                  
                  
                  3.1
                  %
                  
                  
                  4.3
                  %Outsource
      Production Costs
                  
                  
                  6,140,707
                  
                  
                  
                  29.9
                  %
                  
                  
                  5,482,624
                  
                  
                  
                  27.8
                  %
                  
                  
                  12.0
                  %Other
      and Overhead
                  
                  
                  173,343
                  
                  
                  
                  0.8
                  %
                  
                  
                  291,735
                  
                  
                  
                  1.5
                  %
                  
                  
                  -40.6
                  %Retail
      Costs
                  
                  
                  1,696,687
                  
                  
                  
                  8.3
                  
                  
                  
                  36,074
                  
                  
                  
                  0.2
                  %
                  
                  
                  4603.4
                  %Total
      Cost of Sales
                  
                  $
                  15,793,667
                  
                  
                  
                  77.0
                  %
                  
                  $
                  16,026,172
                  
                  
                  
                  81.2
                  %
                  
                  
                  -1.5
                  %Gross
      Profit
                  
                  $
                  4,714,155
                  
                  
                  
                  23.0
                  %
                  
                  $
                  3,721,036
                  
                  
                  
                  18.8
                  %
                  
                  
                  26.7
                  %




Raw
materials cost for our wholesale business were 34.9% of our total sales in
the three months ended March 31, 2009, a decrease of 25.6% compared to the three
months ended March 31, 2008. This decrease was mainly because we centralized our
purchasing function to increase our negotiating strength. In addition, we took
on more manufacturing orders. Clients provided us with raw materials, and we
charged fixed processing fees.




Labor
costs for our wholesale business were 3.1% of our total sales in the three
months ended March 31, 2009 and 2008.




Outsource
production costs for our wholesale business were 29.9% of our total sales
in the three months ended March 31, 2009, an increase of 12.0% compared to the
three months ended March 31, 2008. This increase was primarily attributable to
increased outsourcing orders.




Overhead
and other expenses for our wholesale business were 0.8% of our total sales
in the three months ended March 31, 2009, compared to 1.5% of total sales in the
three months ended March 31, 2008. This decrease was due to better control over
expenses.




Our
retail business cost was 8.3% of our total sales for the three months ended
March 31, 2009.




Total
cost of sales for the three months ended March 31, 2009 was $15,793,667, a
decrease of 1.5% from in the three months ended March 31, 2008. As a percentage
of total sales, our cost of sales decreased to 77.0% of total sales for the
three months ended March 31, 2009, compared to 81.2% of total sales in
the three months ended March 31, 2008. Consequently, gross margin increased to
23% for the three months ended March 31, 2009 from 18.8% in the three months
ended March 31, 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 33.2% and 30.9% of raw materials
purchases for the three months ended March 31, 2009 and 2008, respectively. One
supplier provided 12.7% of our raw materials purchases for both the three months
ended March 31, 2009 and 2008. For our retail business, purchases from our five
largest suppliers represented approximately 53.0% of raw materials purchases for
the three months ended March 31, 2009. Three suppliers provided 13.6%, 12.2% and
11.7% of our total purchases for the three months ended March 31, 2009. We
have not experienced difficulty in obtaining raw materials essential to our
business, and we believe we maintain good relationships with our
suppliers.


24


Wealso purchase finished
goods from contract manufacturers. For our wholesale business, purchases from
our five largest contract manufacturers represented approximately 44.8% and
36.8% of finished goods purchases for the three months ended March 31, 2009 and
2008, respectively. One contract manufacturer provided approximately 21.6% and
12.7% of our finished goods purchases for the three months ended March 31, 2009
and 2008, respectively. For our retail business, our five largest contract
manufacturers represented approximately 40.5% of finished goods purchases for
the three months ended March 31, 2009. No single contract manufacturer
provided more than 10% of our finished goods purchases for the three months
ended March 31, 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.





Revenue,
Cost of Sales and Gross Profit by Segment




The
following table sets forth our total sales, cost of sales, gross profit and
gross margin of our wholesale and retail businesses for the three months ended
March 31, 2009 and 2008.




For the three months ended March 31,2009
                                
                                
                                2008Net Sales
                                
                                
                                Cost of
                                  sales
                                
                                
                                Gross
                                  profit
                                
                                
                                Gross
                                  margin
                                
                                
                                Net Sales
                                
                                
                                Cost of
                                  sales
                                
                                
                                Gross
                                  profit
                                
                                
                                Gross
                                  margin(in
      U.S. dollars, except for percentages)Wholesale
                                
                                $
                                17,975,623
                                
                                
                                $
                                14,096,980
                                
                                
                                $
                                3,878,643
                                
                                
                                
                                21.6
                                %
                                
                                $
                                19,627,010
                                
                                
                                $
                                15,990,097
                                
                                
                                $
                                3,636,913
                                
                                
                                
                                18.5
                                %Retail
                                
                                
                                2,532,199
                                
                                
                                
                                1,696,687
                                
                                
                                
                                835,512
                                
                                
                                
                                33.0
                                
                                
                                
                                120,198
                                
                                
                                
                                36,074
                                
                                
                                
                                84,124
                                
                                
                                
                                70.0Total
                                
                                $
                                20,507,822
                                
                                
                                $
                                15,793,667
                                
                                
                                $
                                4,714,155
                                
                                
                                
                                23.0
                                %
                                
                                $
                                19,747,208
                                
                                
                                $
                                16,026,171
                                
                                
                                $
                                3,721,037
                                
                                
                                
                                18.8
                                %




Gross
profit in our wholesale business for the three months ended March 31, 2009 was
$3,878,643, an increase of 6.6% over 2008. Gross margin was 21.6% for our
wholesale sales in for the three months ended March 31, 2009, an increase of
3.1% compared to the three months ended March 31, 2008. The increase in our
gross margin was mainly due to work on certain manufacturing orders for which we
charged fixed processing fees.




Gross
profit in our retail business for the three months ended March 31, 2009 was
$835,512 and gross margin was 33.0%. The decrease in gross margin was
attributable to the opening of 15 flagship stores with lower margins during the
quarter. We believe the presence of flagship stores can help promote our brand
image and enhance our overall reputation, which will become a significant
strategic asset to the Company. We anticipate that flagship stores will
constitute 10% of our total retail stores. A year over year comparison for
retail is not meaningful given that this business was introduced during the
first 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.


25




For
      the three months ended March 31,2009
                        
                        
                        2008
                        
                        
                        Increase
      %(in
      U.S. Dollars, except for percentages)Gross
      Profit
                        
                        $
                        4,714,155
                        
                        
                        
                        23.0
                        %
                        
                        $
                        3,721,036
                        
                        
                        
                        18.8
                        %
                        
                        
                        26.7
                        %Operating
      Expenses:Selling
      Expenses
                        
                        
                        940,474
                        
                        
                        
                        4.6
                        
                        
                        
                        277,528
                        
                        
                        
                        1.4
                        
                        
                        
                        238.9
                        %General
      and Administrative Expenses
                        
                        
                        1,856,122
                        
                        
                        
                        9.1
                        
                        
                        
                        1,412,654
                        
                        
                        
                        7.2
                        
                        
                        
                        31.4
                        %Total
                        
                        
                        2,796,596
                        
                        
                        
                        13.6
                        
                        
                        
                        1,690,182
                        
                        
                        
                        8.6
                        
                        
                        
                        65.5
                        %Income
      from Operations
                        
                        $
                        1,917,559
                        
                        
                        
                        9.4
                        %
                        
                        $
                        2,030,854
                        
                        
                        
                        10.3
                        %
                        
                        
                        -5.6
                        %




Selling
expenses were $940,474 in the three months ended March 31, 2009, an increase of
238.9% or $662,946 compared to the three months ended March 31, 2008. The
increase was attributable to the increased salaries for salespersons, renovation
and marketing expense associated with the promotion of LA GO GO.




G&A
expenses were $1,856,122 in the three months ended March 31, 2009, an increase
of 31.4% or $443,468 compared to the three months ended March 31, The increase
was partially due to increased payroll for retaining current employees and
increased payroll to attract additional management staff as a result of our
business expansion and increased expenses associated with the development of LA
GO GO.




Income
from Operations




Income
from operations decreased 5.6% to $1,917,559 for the three months ended March
31, 2009 from $2,030,854 in three months ended March 31, 2008.




Interest
Expense




Interest
expense was $123,650 for the three months ended March 31, 2009, a decrease of
78.6% 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 for the three months ended March 31, 2009 was $289,071, a slight
increase 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.




During
the three months ended March 31, 2009 and 2008, Goldenway’s income tax rate was
25%.




New-Tailun
and Catch-Luck were approved as wholly foreign-owned enterprises in 2006 and are
entitled to income tax exemptions in 2006 and 2007. For 2008, 2009 and 2010,
New-Tailun and Catch-Luck are entitled to a 50% reduction to the income tax rate
of 25%. Therefore these two subsidiaries are taxed at 12.5% for these three
years.




During
the three months ended March 31, 2009 and 2008, LA GO GO’s income tax rate was
25%.




Ever-Glory
Apparel was set up on Jan 6, 2009 and its income tax rate was 25%.




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




26


Ever-Glory
International Group Inc. was incorporated in the United States and has incurred
net operating losses for income tax purposes through March 31, 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 for the three months ended March 31, 2009 was $1,610,758, an increase of
34.1% compared to the same period of 2008. Our diluted earnings per share were
$0.12 and $0.10 for the three months ended March 31, 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 from 2008, and the 40% interest held by La Chapelle is
classified as a noncontrolling interest. As of March 31, 2009, the
noncontrolling interest was $537,380.




Summary
of Cash Flows




Net cash
provided by operating activities for the three months ended March 31, 2009 was
$2,365,004 compared with net cash provided by operating activities of $4,315,492
during the three months ended March 31, 2008. This decrease was mainly
attributable to increased accounts receivable as we allow longer collection
periods for our long-term customers with good payment track
records.




Net cash
used in investing activities was $61,941 for the three months ended March 31,
2009, compared with $1,481,656 during the three months ended March 31, 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
provided by financing activities was $87,869 for the three months ended March
31, 2009, compared with cash used in financing activities of $1,484,394 during
the three months ended March 31, 2008. 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
March 31, 2009, we had cash and cash equivalents of $3,833,600, other current
assets of $27,297,793 and current liabilities of $15,640,317. 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.


27




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 March 31, 2009, we had borrowed approximately $5.9 million which matures
in July and August 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 $732,500 which matures on December 7, 2009, and bears an
interest rate of 5.86% per annum and is secured by our CEO’s personal
property. The loan can be extended at our option. We plan to repay the loan
with cash from operations.




Long-term
Loan




As of
March 31, 2009, the long-term loan to Blue Power was $2,689,350.
Interest accrued on the loan to Blue power totaled $29,265 for the three
months ended  March 31, 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.  As of March 31, 2009, the
Company had fulfilled $5.6 million of its registered capital requirements and
had a registered capital commitment of $11.9 million payable by
December 31, 2009. Management doesn’t expect this requirement to have an
impact on the Company’s financial position or results of operations




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
March 31, 2009, we had access to a $7.3 million a line of credit. Of this line
of credit, $1.4 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 March 31, 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.


28




In
addition, the financial statements of Goldenway, New-Tailun, 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 March 31, 2009 and
2008 was ($44,208) and $1,099,884, 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 March 31, 2009, we had approximately $3.8
million in cash and cash equivalents. A hypothetical 5% increase or decrease in
either short term or long term interest rates would not have any material impact
on our earnings or loss, or the fair market value or cash flows of these
instruments.





Foreign
Exchange Rates. We pay our suppliers and employees in Chinese RMB, however, we
sell to customers in the U.S., Japan and Europe and we generate sales in
U.S. Dollars Euros and British Pounds. Accordingly, our business has substantial
exposure to changes in exchange rates between and among the Chinese RMB, the
U.S. 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 March 31, 2009,
the exchange rate between the RMB and U.S. Dollar was 6.83 RMB to one U.S.
Dollar. For additional discussion regarding our foreign currency risk, see the
section titled Risk Factors—Fluctuation in the value of Chinese RMB relative to
other currencies may have a material adverse effect on our business and/or an
investment in our shares.




29




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 its chief executive officer and chief financial
officer, as appropriate, to allow timely decisions regarding required
disclosure. In designing and evaluating the disclosure controls and procedures,
management recognizes that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the
desired control objectives, and management necessarily is required to apply its
judgment in evaluating the cost-benefit relationship of possible controls and
procedures.





As of
March 31, 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.




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


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
March 31, 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.





ITEM 1A.
RISK FACTORS




There has
been no material change in the information provided in Item 1A of Form 10-K
Annual Report for the year ended December 31, 2008.


30





ITEM
      2.
            UNREGISTERED
      SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS





None.




ITEM 3.
            DEFAULTS
      UPON SENIOR SECURITIES





None.




31




ITEM 4.
            SUBMISSION OF MATTERS TO A VOTE
      OF SECURITYHOLDERS





None.




ITEM 5.
            OTHER
      INFORMATION





None.




ITEM 6.
            EXHIBITS





The
following exhibits are filed herewith:




Exhibit No.
                    
                    Description10.1
                    
                    Loan Contract
      entered between International Business Department, Bank of Nanjing Co.,
      Ltd and Goldenway Nanjing Garment Co., Ltd. dated August 19,
      2008.(translation from chinese)*10.2
                    
                    Mortgage Contract
      entered between International Business Department, Bank of Nanjing Co.,
      Ltd and Goldenway Nanjing Garment Co., Ltd. dated August 19,
      2008.(translation from chinese)*10.3
                    
                    Guaranty Contract
      entered between International Business Department, Bank of Nanjing Co.,
      Ltd and Jiangsu Ever-Glory International Group Corporation dated August
      19, 2008.(translation from chinese)*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.


32


SIGNATURES





In
accordance with the requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.




May
      13, 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)


33